Transcript The Fair Tax Americans for Fair Taxation The Fair Tax Founders Where Did it Start? Leo Linbeck* and two business associates (*Chairman and CEO, Linbeck.

The Fair Tax
Americans for Fair
Taxation
The Fair Tax Founders
Where Did it Start?
Leo Linbeck* and two business associates
(*Chairman and CEO, Linbeck Corp; Past Chairman,
Federal Reserve of Dallas)
$4.5 mil. seed money from three associates
Funded studies at major universities and
financial institutions
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Economic Research
Participants
The Argus group (David Burton and Dan Mastromarco)
Boston University (Larry Kotlikoff)
Cato Institute (Steven Moore)
Harvard University (Dale Jorgenson)
Heritage Foundation (Bill Beach)
National Bureau of Economic Research (Jim Poterba)
Rice University, Baker Institute for Public Policy
(George Zodrow)
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Massachusetts Institute of Technology (Joseph Kahn)
Tax System Objectives
Simplicity
Fairness
Eliminate Loop Holes
Protect the Poor
Encourage Investment
Stimulate Business/Job Growth
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Recommended System
A Consumption Tax
Replaces all Federal Taxes
– Except special purpose excise taxes
Applies to all Consumption Expenditures
– Personal
– Business
– Government
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The Fair Tax Replaces
All personal and business income taxes
All capital gains and investment
income taxes
All social security and Medicare
payroll taxes
All gift and inheritance taxes
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The Fair Tax Base
Fair Tax is imposed on ALL consumption:
– Personal
– Business*
– Government
*Fair Tax is NOT imposed on:
– Purchases used in a product for
subsequent sale through a retailer
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Special Provisions
Rebate to all Americans for tax on the
necessities of life
– At the poverty level, households have a zero
tax rate
Charities do not collect a tax on donations
– They are not a consumer
Educational institutions do not tax tuition
or other receipts and gifts
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– Expenditures for education are treated as
an investment
Fair Tax Base
Source: National Income Product Accounts, Survey of Current Business, Aug., 1996
(From Emancipating America from the Income Tax by D. R. Mastromarco and D. R. Burton)
Description of Taxable Item
Personal Consumption Expenditures
$4,924.9
Purchases of New Homes
$ 156.4
Improvements to Single-family Homes
$
73.9
Imputed Rent on Housing
–$ 534.3
Additional Financial Intermediation Services
–$
53.0
Foreign Travel by U.S. Residents
–$
26.4
Expenditures Abroad by U.S. Residents
–$
2.7
Food Produced and Consumed on Farms
–$
0.4
State and Local Government Consumption
$ 682.6
State and Local Government Gross Purchases
$ 150.1
Federal Government Consumption
$ 453.8
Federal Government Gross Purchase
$
62.7
–$
97.5
$
73.1
Less: Education Expenditures
Plus: Expenditures by U.S. Non-residents
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Billions (1995)
Fair Tax Base:
$5,978.2
Rate Determination
Total Taxes Collected + Rebate
_______________________________
=
Total Consumption Expenditures
The necessary tax rate: 23%
Results in lower taxes for
95% of All Americans!
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Rate Determination
How can it result in lower taxes
for 95% of All Americans?
By taxing
– The underground economy
– Visitors, tourists, and illegals
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Why Prices Will Decrease
18-28%
Product/Service Labor Cost Loaded with:
Social Security and Medicare Taxes
(employer half of payroll taxes included in
labor overhead)
Business/corporate Income Tax
5–10%
Cascading of Taxes in Tiered Production
5–10%
Total Tax Load in Product Prices
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7.8125%
18–28%
Effect of FairTax on Prices
Price of goods under current system
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$100
Effect of FairTax on Prices
Price of goods under income tax
- Embedded taxes
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$100
- 18
Effect of FairTax on Prices
Price of goods under income tax
- Embedded taxes
Wholesale cost of goods under FairTax
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$100
- 18
82
Effect of FairTax on Prices
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Price of goods under income tax
- Embedded taxes
$100
- 18
Wholesale cost of goods under FairTax
+ Fairtax
82
+ 25
Effect of FairTax on Prices
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Price of goods under income tax
- Embedded taxes
$100
- 18
Wholesale cost of goods under FairTax
+ Fairtax
82
+ 25
Sales price, tax inclusive,
under the FairTax
$ 107
Effect of FairTax on Paychecks
Get to keep whole paycheck
Income Tax
Gross Pay
FairTax
50,000
50,000
Income Tax (17% minus $5,150 deduction)
- 3,550
- 0 -
Payroll (7.5%)
- 3,750
- 0 -
Take Home Pay
42,700
50,000
- 0 -
2,400
42,700
52,400
Prebate (Single)
Effective Income/Purchasing Power
22.7%
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Purchasing Power Under FairTax
Income Tax
Net Income
42,700
52,400
Price of “Stuff”
100
107
Amount of Stuff You Can Buy
427
490
Added Purchasing Power Under FairTax
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FairTax
14.8%
Fair Tax Rebate—Year 2008
Household
Size
Poverty
Level
Annual
Rebate
Monthly
Rebate
Adult
$10,400
$2,392
$199
Adult + child
$14,000
$3,220
$268
Adult + 2 children
$17,600
$4,048
$337
Couple
$20,800
$4,784
$399
Couple + child
$24,400
$5,612
$468
Couple + 2 children $28,000
$6,440
$537
Couple + 3 children $31,600
$7,268
$606
(Poverty level determined by the Dept. of Health and Human Services)
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FAIR TAX EFFECTIVE TAX
RATE
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
$22,500
$45,000
$90,000
$180,000
0.0%
11.5%
17.2%
20.1%
$2,250,000
-5.00%
-10.00%
-15.00%
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-11.5%
22.8%
Tax Inclusive vs. Tax Exclusive
Rates
Income Tax Rate of 23% is Tax Inclusive
– Income includes the tax that is paid
Fair Tax Rate of 23% is Tax Inclusive
– Equivalent to an exclusive rate of 29.9% added
to a purchase
– $100 purchase + 29.9% = $129.9 gross purchase
– $29.9 tax divided by $129.9 = 23%
No American can pay more than 23% of his
gross purchases for Federal Taxes
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The Fair Tax Stimulates
Economic Growth
Through encouragement of:
Reinvestment of tax free earnings
Reinvestment of tax free dividends
Reinvestment of untaxed capital gains
Increased personal savings and investment
Foreign capital investment
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Lower interest rates
Compliance/Tax Evasion
Easier tax enforcement
– 90% reduction in tax filers
– Only audits of customer shipments from
manufacturers needed
– Cash register records of retails
Relative simplicity of Fair Tax will encourage
compliance
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The Fair Tax Accomplishes:
It lets every worker keep their entire
paycheck—NO income or payroll taxes
It lets retirees keep their pensions and
social security checks—Untaxed
It lets everyone keep capital gains and
investment income—Untaxed
It encourages savings and investments
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The Fair Tax Accomplishes:
It eliminates gift and inheritance taxes
It taxes spending of inherited/gifted wealth
more fairly
It ends personal and corporate income
tax filings
It eliminates the $225 billion cost of the
income tax industry
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The Fair Tax Accomplishes:
It eliminates the need for the $8 billion IRS
It encourages repatriation of wealth from
tax havens
It encourages foreign capital investment
It stimulates exports
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It stimulates economic growth and
job formation
The Fair Tax Accomplishes:
It eliminates all tax loopholes
It has a significantly lower cost of
enforcement
It eliminates a significant percent of
congressional lobbyists
It makes the real federal tax rate visible to
voters—every time the cash register rings
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Flat Tax vs. Fair Tax
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Fair Tax
Flat Tax
Is still an income tax
No
Yes
Eliminates $250 mil. Income tax industry
Yes
No
Simplifies business accounting and reporting
Yes
No
Stimulates exports
Yes
No
Encourages capital repatriation from tax havens
Yes
No
Encourages investment
Yes
No
Eliminates product tax build up in product cycle
Yes
No
Result in lower interest rates
Yes
No
Eliminates double taxation of business profits
Yes
No
Facilitates home ownership
Yes
No
Taxes inherited and gifted wealth more fairly
Yes
No
Probable Fair Tax Effect on
State Tax Policy
Repeal State Income Tax
– Enforcement too expensive without IRS
Eliminate Exemptions to State Sales Tax
– Necessary to become Fed tax collector
– Too confusing to have different rates
Become Fed Tax Collector
– Collect 1/4% from Feds
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The Fair Tax Is:
Deceptively Simple
Extraordinarily Efficient
Fair to all Tax Payers
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What do we want from you?
Join Five for FairTax
– text “fairtax” to 95495, or
– www.fiveforfairtax.org
Participate in
– Tea Parties and special events
– Community Meetings
– State Organization
Let elected officials at State and Federal
know you want the FairTax
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Americans for Fair Taxation
Texas FairTax: www.txfairtax.org
FairTax Nation: fairtaxnation.ning.com
AFFT: www.fairtax.org
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